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Natural Gas Year-in-Review

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Consumption

Figure 8. Graph showing annual consumption by sector, 1997 - 2011 (billion cubic feet per day)figure data

Total natural gas consumption rose from 65.1 Bcf/d in 2010 to 66.8 Bcf/d in 2011. Consumption in the electric power and industrial sectors showed the largest increases, (Figure 8).

Electric Power

Figure 9. Graph of natural gas consumption for electric power generation in 2011 difference from 5-year (2006-2010) average

Use of natural gas for electric power generation continued its overall upward trend, as natural gas prices fell both in absolute terms and in relation to coal prices, providing an incentive for fuel substitution. Use of natural gas for electric power rose to 21.6 Bcf/d in 2011 from 21.0 Bcf/d in 2010. Major consuming regions in the eastern United States saw natural gas consumed for electric power generation significantly exceed the previous 5-year average (Figure 9).

Increased air conditioning load in much of the country, which experienced particularly high temperatures during the summer of 2011, contributed to the increased use of natural gas for electric power generation. The increase in natural gas consumed during the summer months contributed to twenty states setting 10-year highs for natural gas consumption for electric generation for the entire year. Most of these records occurred in states located in the eastern half of the United States.

Texas did not set an annual record for natural gas consumed for power generation, but did set new monthly records. Texas averaged an estimated 6.3 Bcf/d during July 2011 (compared to 5.1Bcf/d in July 2010), and reached a 10-year high of 6.8 Bcf/d in August 2011 (compared to 6.2 Bcf/d in August 2010).4, Extreme temperatures stressed Texas' power generation capacity, leading to increased use of natural gas for summer generation in a State that already depends very heavily on natural gas-fired power generation. During the summer, the Electric Reliability Council of Texas (ERCOT), which manages the power grid for the state, warned of rolling blackouts and urged consumers to conserve energy as temperatures hit record highs.

In contrast, the western United States saw natural gas consumed for electric power generation below the 5-year average. For example, in the Pacific Northwest, the volume of natural gas consumed for power generation dropped dramatically. The region's exceptionally strong hydropower season led the Bonneville Power Administration to issue limits on the use of natural gas, coal, and wind for power generation.5 Although Pacific Northwest natural gas-fired power generation is very small compared to the rest of the country, the effect of the limits brought natural gas consumption for power generation down to very low levels, about 0.2 Bcf/d in July 2011, compared to 0.5 Bcf/d in July 2010. Despite temperatures that were warmer than the previous year, power burn levels were substantially below normal through October.

Industrial

Industrial consumption of natural gas rose for the second consecutive year in 2011, from 17.9 Bcf/d in 2010 to 18.5 Bcf/d in 2011. The increase in industrial use was driven by the continued economic recovery, reflected in the natural gas industrial production index.6 Industrial prices, following the general trend of wholesale natural gas prices, remained relatively low for the third consecutive year at $4.89 per MMBtu (in 2008, prices averaged about $9.40 MMBtu).

Although data related to industrial activity for 2011 are currently unavailable, the industrial sector was poised to benefit from lower natural gas prices in 2011. Manufacturing industries, such as chemicals and steel, use natural gas for heat and power in their production processes. The chemical industry also uses natural gas as an input, or feedstock, in the manufacture of certain chemicals and products such as hydrogen, nitrogenous fertilizer, and methanol. Lower natural gas prices have allowed some fertilizer plants to boost production, with at least one stating that the shift in production costs will lead to plant expansions.7 Moreover, the recent boom in natural gas production from wet plays (those with high liquids content) has been accompanied by record-breaking NGL production, which has led to greater petrochemical cracking of NGLs.

Residential and Commercial

Consumption of residential and commercial gas is driven largely by weather, since the primary use of natural gas in this sector is space heating. While 2011 was, on average, warmer than 2010 (4,460 heating degree-days in 2010 compared with 4,320 heating degree-days in 2011), some key natural gas consuming areas experienced a colder winter. For example, in New England, heating degree-days rose 3 percent year-over-year. Nearly 20 percent of homes that heat with natural gas are located in the Northeast.8 Overall, residential natural gas consumption fell by about 1 percent and commercial consumption rose by about 2 percent.


Footnotes

4July and August were extremely hot months, both in Texas and globally. July was the fourth warmest on record for the United States, according to NOAA: http://www.noaanews.noaa.gov/stories2011/20110808_julystats.html, and August was the eighth warmest globally since record-keeping began in 1880: http://www.noaanews.noaa.gov/stories2011/20110915_globalstats.html

5Curtailments were issued beginning in May when high levels of runoff from the Columbia River led to a temporary oversupply of hydroelectric power. More information available here: http://www.bpa.gov/corporate/BPANews/ArticleTemplate.cfm?ArticleId=article-20110518-01

6The natural gas-weighted industrial production index reflects trends in output in natural gas intensive industries. For example, a year-over-year increase in the natural gas weighted industrial production index indicates year-over-year strength in natural gas intensive industries. Some of the major natural gas intensive industries are petroleum refining, fertilizer production, organic chemical production, and paper and pulp production.

7"Shale Gas Boom Spurs Race," Wall Street Journal, December 27, 2011.

8The Northeast region is comprised of the New England States (Connecticut, Rhode Island, Massachusetts, Vermont New Hampshire, and Maine) and the Middle Atlantic (New Jersey, New York, and Pennsylvania).